Latest Coronavirus Job Retention Scheme Rules
We have detailed below the latest guidance as released on 26 March 2020 and updated on 15 April 2020, together with some illustrations:
- Furloughed members of staff must not work for the employer during the period of furlough.
- Furlough is from 1 March 2020, so payments will be backdated. It will last for at least 3 months initially and will be extended if necessary. Note that while the scheme is backdated to 1 March and is intended to support all those employed then, a firm will only be eligible to claim the grant once they have agreed the furlough with their staff and staff have stopped working for the employer. This will of course be subject to employment law in the usual way.
- The scheme is available for employees on the payroll on or before 19 March 2020 and notified to HMRC on an RTI submission on or before 19 March 2020.
- Employees that were employed as of 28 February 2020 and on payroll (i.e. notified to HMRC on an RTI submission on or before 28 February) and were made redundant or stopped working for the employer after that and prior to 19 March 2020, can also qualify for the scheme if the employer re-employs them and puts them on furlough.
- Employees can be on any type of employment contract, including full-time, part-time, agency, flexible or zero-hour contracts. Foreign nationals are eligible to be furloughed. Grants under the scheme are not counted as 'access to public funds', and you can furlough employees on all categories of visa.
- If an employee started unpaid leave after 28 February 2020, you can put them on furlough instead. If you put them on furlough then you should pay them at least 80% of their regular wages, up to the monthly cap of £2,500. If an employee went on unpaid leave on or before 28 February, you cannot furlough them until the date on which it was agreed they would return from unpaid leave.
- All UK businesses are eligible, 'any employer in the country, small or large, charitable or non-profit' to use the Chancellor's words.
- The scheme pays a grant (not a loan) to the employer.
The grant will be paid to the employer through a new online system which is expected to go live on Monday 20 April 2020.
The employer will pay the employee through the payroll, and report payments to HMRC using the Real Time Information (RTI) system as usual, as required by the employment contract. This contract may be re-negotiated, but that is a matter for employment law.
The scheme will be administered by HMRC:
- Relevant employees must be designated as furloughed employees.
- Employers will submit claims to HMRC through a new online portal.
The maximum grant will be calculated per employee and is the lower of:
80% of ‘an employee's regular wage’ and
£2,500 per month
Plus the associated employers’ national insurance contributions (NIC) on this amount and the minimum automatic enrolment employer pension contributions on that wage.
Fees, commission and bonuses should not be included.
This gives a maximum cap of £2,500 +£245 (employers’ NIC) + £59 (auto- enrolled pension contribution) = £2,804 of total possible grant that can be applied for per employee per month.
Claims should be started from the date that the employee finishes work and starts furlough, not when the decision is made, or when they are written to confirming their furloughed status. HMRC will aim to process claims within 6 working days.
When the government ends the scheme, you must make a decision, depending on your circumstances, as to whether employees can return to their duties. If not, it may be necessary to consider termination of employment (redundancy).
HMRC will process all claims made before the scheme ends.
Latest guidance from HMRC:
X Ltd employs Mr A at an annual salary of £24,000, so £2,000 per month. Mr A has opted out of auto enrolment.
Each month, Mr A currently receives net pay of £1,655 which is after deducting PAYE of £191 and employees NIC of £154. On this salary, the employer pays employers' NIC of £177.
The available grant for the employer is the lower of:
80% of £2,000, and
Plus employers' NIC on this amount.
So X Ltd claims a grant of £1,600 plus £177 = £1,777.
The net amount of cash required by X Ltd to furlough Mr A based on maintaining the existing salary is £2,000 + £177 - £1,777 = £400 per month.
It is a matter for employment law whether the employer is actually required to pay this top up. Employees and employers can agree to a different arrangement during the furlough.
X Ltd employs Mr B at an annual salary of £42,000, so £3,500 per month. Mr B has opted out of auto enrolment.
Each month, Mr B currently receives net pay of £2,675 which is after deducting PAYE of £492 and employees NIC of £333. On this salary, the employer pays employers' NIC of £383.
The available grant for the employer is the lower of:
(c) 80% of £3,500 = £2,800, and
Plus employers NIC, £245, on this amount.
So X Ltd claims a grant of £2,500 plus £245 = £2,745.
The net amount of cash required by X Ltd to furlough Mr A based on maintaining the existing salary is £3,500 + £383 - £2,745 = £1,138 per month.
It is again a matter for employment law whether the employer is actually required to pay this top up. Employees and employers can agree to a different arrangement during their furlough.
Notes to illustration based on an extended understanding of how the scheme will work:
If Mr A had not opted out of auto enrolment, X Ltd would also be making pension contributions on his behalf.
We understand that the rules for the scheme are being designed with underlying reference to employment law. If the individual is still under contract, Mr A can expect to receive his salary in full. The grant paid to X Ltd should not be taken as the new maximum cost of employment to the employer unless the contract has been redrafted.
Subject to the employment contract and any amendment, the salary which the employer actually pays the employee during the furlough period may be different to the pay in the reference period and upon which the grant figure is based. However, the employer must pay at least the amount of the grant.
Pubco - a scenario
In the following illustration, the business has already closed as instructed by the government and is seeking clarification of our understanding of how the rules apply.
Mr & Mrs Fuller are the tenants of a pub. They have a substantial wet and food trade as the pub is in a coastal location and does good trade over the Summer. The pub is open all year round.
Mr & Mrs Fuller operate the pub through a limited company (Pubco). They take salaries of £8,600 each and withdraw profits of £30,000 each in the form of dividends. They live above the pub and work long hours being in the pub every day.
Pubco employs three permanent staff supplemented by extra seasonal staff in the Summer months and at Christmas.
The pub closed on 20 March as instructed by the Prime Minister and following the Chancellor’s announcement on 20 March, Pubco has furloughed its staff other than Mr & Mrs Fuller who are still living above the pub and dealing with the company administration. The contracts of employment of the other staff have been varied to permit furloughing and the three permanent staff members have agreed to accept a pay reduction to 80% of the previous level. The seasonal staff for this year have not yet been hired.
Our understanding is that Pubco will be eligible to receive the government grant support under the Coronavirus Job Retention Scheme for the monthly wages of the three permanent staff members. The seasonal staff were not on the payroll at 28 February and so are not eligible. No grant support is available to support the living costs of Mr & Mrs Fuller.
Mr & Mrs Fuller will need to look for alternative support while the pub remains closed.
If you have any questions at all in relation to the above please do get in touch with our Tax Partners, Steve Crompton or Lucy Williams on the details below: